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Investing in the economic market is basically the act of putting money into a vehicle and hoping that it drives returns over a period of time.

There are largely 3 ways for you to invest in the economic market and we are here to discuss which is the best solution for you to adopt. Each of the approaches has their pros and cons and we are here to discuss more on each of them especially now that online platforms are a big part of these services.

Beat or Match the Index?

You may be thinking… what is an Index Benchmark? 🙂 In simple words, an index is like the performance of the market. Here’s a simple idea in the image below, where the chart tracks the index. For the STI (Straits Times Index) it tracks the top 30 companies in Singapore which includes a variety of industries eg. DBS, OCBC (banks), SingTel (Telco), Hong Kong Land (Properties) etc.

Summary: Choose the approach that matches your knowledge level

DIY: For the most investment savvy, and have time to learn and construct/maintain your own portfolio

Active Funds: For the intermediate investment savvy, and keen to potentially beat the market benchmark index with time to pick funds

Passive Funds: Highly recommended for beginners and keen to start investing and understand more about index investing with little time to spare

‘Do It Yourself’ Approach

If you are the kind who is keen to buy a certain stock or ETF, you may be keen to open up your own brokerage account and start trading. Do note that you need to know more about what you are buying and at least have a basic level of investment knowledge before taking this approach.

Pros:

If you know what you are buying and selling, you can potentially get significant returns

Full autonomy to control your own portfolio structure

Rebalance and configure based on economic conditions

Cons:

Online Trading and Brokerage Platforms can get confusing to master

May fall into the trap of speculation (i.e market sentiment) and thus not diversified enough

Fees can get hefty (from $10 to $25 a trade) hence more suitable for buy & hold approach

How:

Set up a brokerage account with any of the banks or brokerage firms (where they buy/sell stocks on your behalf)

Set up an SGX CDP, Central Depository account (where they deposit your stocks)

‘Active Funds’ Approach – Unit Trusts

These are an actively managed investment funds which are not traded on a stock market. It’s usually higher cost due to the nature of the way that a fund is managed… In this case, as seen above, like a team of analysts running behind the scenes looking to try and beat the market.

One Unit Trust stock = A fund of different holdings, managed by humans and algorithms behind.

How:

Another way would be buying the ETF via a brokerage (similar to what has been described above in the DIY section)

Bonus Reading: What about Globally Diversified ETFs?

For more savvy readers, you might have realized that the above description of passive fund investing I shared was either the STI ETF or the US S&P 500 ETF. However, what if you wanted to be diversified over the world and track many indexes? Enter Robo-Advisors. The promise: Low-cost Diversified Passive Investing.

Low Cost:

Usually, 0.5% to 1% fees are charged for total amount managed (because they are run by models and algorithms behind instead of fund managers, hence the word ‘Robo’)

Diversified:

Usually put into a basket of Global Exchange Traded Funds (ETFs) which exposes the fund to the global economy in different sectors in some form of a mix of equities and bonds. Some of these ETFs are not available to retail investors.

Passive Investing:

A longer-term approach to growing wealth rather than high-frequency trading and taking short-term positions.

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